D Day For Greece

16 July, 2015

Simon Eastman

Yesterday was a busy day for currency traders with so much going on around the world, overshadowed by the fact it was D-Day for the Greeks as their parliament voted on whether to pass all the EU regulations imposed for their bailout. The Greek ministers met throughout the day’s trade, under the spotlight as we all waited for news as to whether it was an agreekment or not. This was all happening under the shadow of comments by the IMF who stated the deal was unsustainable, quoting Greek borrowing would rise to 200 percent of their GDP. The Greek people are clearly unhappy about the prospects of further austerity as the proposals to be passed included a cut in social security, a rise in property tax and price hikes in food to raise national revenue, all which will culminate in many, many years of hardship for the general population.

While the markets waited, investors looked vaguely at the raft of ecostats which were released throughout the day. Starting off in the UK with employment data and average earnings, the pound took a nose dive across most of its counterparties as the figures missed the mark. The unemployment rate actually rose last month from 5.5 percent to 5.6 percent while average earnings grew less than forecasters predicted at 2.8 percent. The number of Brits claiming job seekers allowance grew by 7000 whereas there was an expectation of a drop of around 9000 – a stark contrast. Trading against the US dollar was fairly flat after the initial drop until the US markets opened after lunch. Positive inflation data gave the greenback the push it needed to gain some more ground from sterling, making a cent at its peak. The stronger dollar also helped sterling reach fresh highs against the ailing euro, as markets still waited for some news from Greece. The levels seen near close of trade were equal to the best we have seen in some 9 years and many clients took the opportunity to lock in for their future requirements on forward contracts.

Elsewhere, in Canada the Bank of Canada surprisingly cut their head line interest rate by 25 basis points to 0.5 percent. This shock move led to Loonie selling as the pound gained nearly 3 cents. For those looking to send money to Canada the difference for buying C$ 300,000 equated to some £2300 less by the close of trade. This is the second time this year they have cut rates in an attempt to stimulate the economy as their growth forecast for the year has been significantly marked down in recent months. The last cut was in January so could they be eyeing further cuts early next year if this round doesn’t work? Or could QE come into the fray? For now, it’s worth taking advantage for any transfers to Canada as such spikes are often followed by a corrective phase. Overnight New Zealand inflation figures came out slightly below expectation at 0.3 percent, opposed to 0.4 percent. Not a big difference but with the continued weakness of the Kiwi, traders continued to sell giving sterling an overnight gain of 3.5 cents – a significant difference for anyone sending money to New Zealand.

Finally early this morning we had Swiss retail sales which came in at an incredible negative 1.8 percent – leaving the Swiss Franc struggling as sterling took an immediate half cent and it continues to make gains. The main focus point this morning is the fact the Greek parliament agreed to the tough economic terms set by the Eurogroup allowing them to receive an €86 billion bailout. 229 voted Yes, while 64 voted No and 6 abstained, with half of the No votes coming from the Greek Prime Ministers own Syriza party. Yesterday ahead of the votes conclusion there were riots in Athens, as protesters threw petrol bombs at police and police retaliated with tear gas – unfortunately, with so many Greek people now facing extreme difficulties, could be a sign of things to come. The euro has responded to the downside, weakening further since European trade opened. This is most likely due to the fact the deal is seen as ridiculous and unsustainable (according to the IMF), with Tsipras himself telling voters he did not believe in the deal, but MPs must vote yes all the same.

It seems investors agree and are still not willing to back the struggling single currency. These are unprecedented times with the expectation once a Greek deal was ratified that we would see the euro gain not happening, yet. With the ECB meeting this afternoon maybe more light will be shed on how the central bank sees the deal for Greece and Mario Draghi ‘s thoughts on the sustainability of it. Make sure to tune in after lunch for further insight. So onto the rest of today and while markets digest the news from Greece, the EU release their key inflation figures and trade balance ahead of the ECB interest rate meeting at lunch and subsequent press conference early afternoon. Following that, the only key point to note is the FOMC’s Janet Yellen who makes an appearance before Congress, having to explain the current economic situation and make explanations over policies they have applied followed by a Q&A session which as with the ECB press conference, can lead to much market volatility. It is undoubtedly going to be a very busy and volatile day on the currency markets today so if you have haven’t already fixed your rate and need some friendly guidance, contact one of the CI team this morning to discuss your needs.